San Bernardino says it can't pay state $15.2M

SAN BERNARDINO, Calif. 
The bankrupt city of San Bernardino is once again sparring with the state over millions of dollars in former redevelopment funds.

California's Department of Finance has warned in a letter that it could take the unprecedented step of keeping some of San Bernardino's future tax receipts if the city does not return $15.2 million in redevelopment money by April 3.

City Attorney James Penman said Tuesday that the city simply cannot pay, and any collection action by the state would be illegal.

If it had to pay out that kind of money, San Bernardino's city government "would cease to exist," Penman told the Riverside Press-Enterprise (
http://bit.ly/X3y9LM
).

Penman said the city's petition for bankruptcy protection imposes an automatic stay on collections.

"It's a violation of federal law for them to threaten to seize assets," Penman said.

Penman sent a letter to Finance Director Ana Matosantos, demanding a promise by the end of the week that her agency will not try to claim the money from the ailing city.

He sent an identical letter to state Controller John Chiang, who said in a report last week that the city failed to properly transfer more than $500 million in redevelopment funds and ordered that the money be turned over to a successor agency.

California has dissolved all its local redevelopment agencies, about 400 in all, telling cities to give remaining money to successor agencies tasked with settling debts.

San Bernardino declared bankruptcy in August, under crushing debt.

The letter from the Finance Department said that failure to pay the $15.2 million could result in criminal penalties.

The Finance Department has also warned that if other efforts failed, the state could garnish the city's tax revenue, a recently granted power that the department has yet to use, spokesman H.D. Palmer said.